ARTICLES BY TOPIC ¦ MEMOS TO CLIENTS
February 9, 1999
MEMO TO OUR CLIENTS
Those attending the Congressional Conference, "Saving Social Security from the Privatization Threat," at which i spoke on January 21 were primarily members of the House and their staffs. I presented my finding, based on a review of the Annual Reports of the OASDI Trustees over the past 20 years, that Social Security has no financial problem when appropriate actuarial assumptions are used. The papers containing my text and data are enclosed.
There has been a swift reaction. One attendee, Congressman Jerrold Nadler of New York, asked President Clinton about the "extraordinarily conservative assumptions" at the televised January 27 White House Roundtable on Social Security. Replying were the President, Vice President Gore, Social Security Commissioner Apfel, and former Chair of the Council of Economic Advisors Laura Tyson. Later that day, Rep. Nadler also sent a letter of inquiry on the practices of Social Security's actuaries to the Comptroller General of the United States (copy enclosed).
In his reply, the President surprisingly admitted about the assumptions that "I think they're wrong, but I don't think we can take the risk." He added that they are also right, although the reasons he gave did not always seem to support that position.
As I final note, I have written the Chairman of the Actuarial Standards Board of the American Academy of Actuaries asking for the opinion of the board as to whether the Social Security actuaries abided by the Academy's standards for setting the actuarial assumptions. My letter cites three prominent actuaries with special expertise on setting actuarial assumptions, who are in agreement with my conclusion that they did not do so abide.
Sincerely,
David Langer
The Honorable David M. Walker
Dear Comptroller General Walker:
It has been brought to my attention that the actuarial practices of the Social Security Administration apparently are not in accordance with the standard actuarial guidelines of the American Academy of Actuaries, and that, as a result, the annual reports on the status of the Social Security system may be seriously in error. Furthermore, the Social Security Administration has not followed the normative practice of stating its reasons for deviating from the professional guidelines. I, therefore, request that the General Accounting Office investigate and report whether or not the Social Security actuarial projections violate standard actuarial practices.
For example, the guidelines of the American Academy of Actuaries require that actuaries estimate possible future outcomes based on past experience and future expectations. It appears that the Social Security actuaries rely principally on what they expect future experience to be. The Gross Domestic Product averaged 3.3% growth from 1960 to 1997, yet the future average GDP growth projected by the actuaries was regularly lowered from 3% in 1978 to 1.5% in 1997. This dramatic shift caused the Social Security Trust Fund to be projected to be exhausted by the year 2032. If the GDP assumption had remained closer to 3%, there would not need to be a financial imbalance, and the Trust Fund would not be projected to be exhausted. This argument is more fully elaborated in a paper submitted to a Congressional conference on Social Security last week by David Langer, a consulting actuary. I am appending a copy of the paper to this letter.
Please answer the following questions:
1) Do the projections of the Social Security actuaries violate standard actuarial practices? I look forward to your response. Please do not hesitate to contact me at 202-225-5635 if you have any questions. Thank you for your cooperation.
Sincerely,
Jerold Nadler
January 27, 1999
Comptroller General of the United States
General Accounting Office
Room 7125
441 G Street, N.W.
Washington, DC 20548
2) Are there professionally valid reasons for any such deviations?
3) In light of the answers to these questions, are the Social Security Administration's projections reasonable?
4) Do the calculations in Mr. Langer's paper, appended hereto, follow standard actuarial practices?
5) Are Mr. Langer's projections reasonable and legitimate?
6) Whose projections are more reasonable, Mr. Langer's or those of the Social Security Administration? Please elaborate the basis for this conclusion.
7) If neither of these are accurate, what does the GAO believe to be an accurate projection of the Social Security system's finances? Please elaborate the bases for this conclusion.
Member of Congress
© 2001 DAVID LANGER COMPANY, INC.